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Tata Power To Sell Defence Business Unit To Group Company

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Tata Power Company Ltd. has approved the sale of its strategic engineering division to group company Tata Advanced Systems Ltd. at an enterprise value of Rs 2,230 crore.

Of the total deal value, Rs 1,040 crore is payable at the time of closing the transaction and Rs 1,190 crore on achieving certain milestones, Tata Power said in a statement. The deal is subject to statutory approvals. Tata Advanced Systems, a wholly-owned subsidiary of Tata Sons Ltd., is an integrated solutions provider for aerospace, defence, and homeland security.

The strategic engineering division is one of Tata Power's non-core business units. The division generated a turnover of Rs 532 crore in the last financial year, and its net worth stood at Rs 538 crore.

The sale will allow the Mumbai-based electric utility to focus on its core business of electricity generation, transmission, and distribution.

Earlier in the week, the company had announced plans to sell its stake in Tata Communications Ltd. and Panatone Finvest Ltd. to Tata Sons and its affiliates for around Rs 2,150 crore.

Motilal Oswal View

The sale of the strategic engineering division and Tata Communications stake will help reduce Tata Power’s debt by around 10 percent, Motilal Oswal wrote in a note to clients. The strategic engineering division was valued at Rs 650 crore by the brokerage.

Here are the highlights of what the brokerage had to say:

  • Milestone payment will be realized over the next three to four years subject to the strategic engineering division winning orders.
  • Deal implies enterprise value to sales ratio of 4.2 times and enterprise value to earning before interest, taxes, depreciation and amortisation of around 40 times.
  • Tata Projects is the last major non-core asset with Tata Power. A sale could fetch as much as Rs 1,100 crore.
  • Adjusted for lower-than-expected value realized on sale of Tata Communications stake, the target price would increase by Rs 3 to Rs 77/share.

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